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BACKGROUND
The Nigerian real estate industry may be described as a potential backbone for the Nigerian economy.Participation in the industry has various limiting factors that impede investment such as unfavorably terms for bank financing, high interest rates, regulatory oversight forcollective investment schemes and exorbitant transfer taxes. However there are a wide
range of flexible legal structures available under which investors may participate in real estate investment while ensuring that their economic and commercial concerns are
addressed.
When considering any structure for a real estate transaction, the possibility of being treated as a collective investment scheme ”Scheme” under the Investment and Securities
Act must be considered, the Act defines a scheme as “a scheme in whatever form, including an open ended investment company in pursuance of which members of the public are invited or permitted to invest money or other assets in a portfolio”.The regulatory burdenof a Scheme will be avoided if the structure chosen does not fall under the scope of the Act, for instance , unlike a Scheme which is open to the investing public and subject to regulatory oversight, a co-ownership is a purely private arrangement which is formed by way of invitation to select investors.
THE CO-OWNERSHIP CONCEPT
A co-ownership is a legal structure which permits more than one investor to jointly own real estate or a portfolio of assets, by combining resources and sharing risks associated with real estate acquisition/development.
TYPES OF CO-OWNERSHIP
There are two main types of co-ownership: Tenancy In Common and Joint Tenancy. Each typeofco-ownership provides different rights and obligations as follows;
1. Tenancy In Common: Each tenant in common has a separate fractional interest in the entire property but may also possess and use the whole property. Tenants In
Common may hold unequal interest in the property which is usually based on their contributions.
Tenants In Common do not have the right of survivorship.Therefore, upon the death of one tenant in common, his/her interest passes via a will or through the laws of intestacy to another person(s) who will then become a Tenant In Common with the surviving co-owner(s).
2. Joint Tenancy: Joint tenants hold a single unified interest in the entire property. Each joint tenant must have equal shares in the property. Each joint tenant may occupy the entire property subject only to the rights of the other joint tenant(s). Joint tenancy is distinguished from tenancy in common by the concept of”survivorship.” This means that when one joint owner dies, the surviving owner becomes the sole owner of the entire property, free from the claims of creditors and heirs of the deceased joint tenant. It also means that the property will not pass through the deceased’s will, but simply vests in the surviving joint tenant.
Any co-owner’s interest held in Tenancy In Common or Joint Tenancy may be freely transferred to third parties. However, if one joint tenant transfers his/her interest to a third party, the third party becomes a tenant in common with the other co-owners who remain joint tenants with each other.
STRUCTURING THE CO-OWNERSHIP
The traditional method for structuring joint venture real estate investments was for the participating investors to establish a limited liability company to acquire the asset with each investor holding a proportion of the issued shares in the company, however given the fact that such investors would be liable to dual taxation i.e. corporate tax and tax on dividends it is advised that investors acquire a direct interest in real estate which may be achieved through a co-ownership trust.
REGISTRATION OF THE INTEREST
Due to the limitation in some states on the number of persons who may jointly be registered as holding the legal title in real estate, the co-ownership is structured as a trust whereby one of the co-owners holds the legal title in trust for the remaining co-owners who are beneficial owners entitled to the receivables from the land alternatively an independent entity may be appointed as trustee.
TAXATION
The co-ownership arrangement is structured as a bare trust under which the beneficiary of the trust has an immediate and absolute right to income.Beneficiaries will thus have to pay income tax on income that the trust receives therefore each co-owner is assessed to tax on its own share of the rental income and other gains.
LIABILITY
In a co-ownership arrangement there is no responsibility for the debts of other co-owners, no right to act as agent for any other co-owners and no fiduciary obligations are owed. The liability of the co-owners is limited to their joint investment in the asset.
REGULATING THE ROLES OF PARTICIPANTS
A trust deed is created to regulate the relationship between the investors and will deal with matters such as:
1. The quantum of interest held by each participating investor.
2. A provision that each co-owner’s liabilities are proportionate to such co-owner’s interest.
3. Delegation of the management of the property to a developer or property manager (to avoid the accusation that the co-owners are “carrying on a business in common” and thus be misconstrued as a partnership).
4. Procedures for decision making.
5. The duration for which the co-investment would exist.
6. The procedure by which the receivables from the assets would be distributed to the co-owners.
7. The procedure for disposal of a co-owners interest under the structure, it is typical for the remaining co-owners to have a pre-emptive right over any interest which is to be disposed.
CONCLUSION
The co-ownership structure is an efficient and cost effective investment vehicle that give investors a direct interest in real estate and allows for participation in a capital intensive market that would be impossible, impractical, or less desirable for individual investors.
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BACKGROUND
The Nigerian real estate industry may be described as a potential backbone for the Nigerian economy.Participation in the industry has various limiting factors that impede investment such as unfavorably terms for bank financing, high interest rates, regulatory oversight forcollective investment schemes and exorbitant transfer taxes. However there are a wide
range of flexible legal structures available under which investors may participate in real estate investment while ensuring that their economic and commercial concerns are
addressed.
When considering any structure for a real estate transaction, the possibility of being treated as a collective investment scheme ”Scheme” under the Investment and Securities
Act must be considered, the Act defines a scheme as “a scheme in whatever form, including an open ended investment company in pursuance of which members of the public are invited or permitted to invest money or other assets in a portfolio”.The regulatory burdenof a Scheme will be avoided if the structure chosen does not fall under the scope of the Act, for instance , unlike a Scheme which is open to the investing public and subject to regulatory oversight, a co-ownership is a purely private arrangement which is formed by way of invitation to select investors.
THE CO-OWNERSHIP CONCEPT
A co-ownership is a legal structure which permits more than one investor to jointly own real estate or a portfolio of assets, by combining resources and sharing risks associated with real estate acquisition/development.
TYPES OF CO-OWNERSHIP
There are two main types of co-ownership: Tenancy In Common and Joint Tenancy. Each typeofco-ownership provides different rights and obligations as follows;
1. Tenancy In Common: Each tenant in common has a separate fractional interest in the entire property but may also possess and use the whole property. Tenants In
Common may hold unequal interest in the property which is usually based on their contributions.
Tenants In Common do not have the right of survivorship.Therefore, upon the death of one tenant in common, his/her interest passes via a will or through the laws of intestacy to another person(s) who will then become a Tenant In Common with the surviving co-owner(s).
2. Joint Tenancy: Joint tenants hold a single unified interest in the entire property. Each joint tenant must have equal shares in the property. Each joint tenant may occupy the entire property subject only to the rights of the other joint tenant(s). Joint tenancy is distinguished from tenancy in common by the concept of”survivorship.” This means that when one joint owner dies, the surviving owner becomes the sole owner of the entire property, free from the claims of creditors and heirs of the deceased joint tenant. It also means that the property will not pass through the deceased’s will, but simply vests in the surviving joint tenant.
Any co-owner’s interest held in Tenancy In Common or Joint Tenancy may be freely transferred to third parties. However, if one joint tenant transfers his/her interest to a third party, the third party becomes a tenant in common with the other co-owners who remain joint tenants with each other.
STRUCTURING THE CO-OWNERSHIP
The traditional method for structuring joint venture real estate investments was for the participating investors to establish a limited liability company to acquire the asset with each investor holding a proportion of the issued shares in the company, however given the fact that such investors would be liable to dual taxation i.e. corporate tax and tax on dividends it is advised that investors acquire a direct interest in real estate which may be achieved through a co-ownership trust.
REGISTRATION OF THE INTEREST
Due to the limitation in some states on the number of persons who may jointly be registered as holding the legal title in real estate, the co-ownership is structured as a trust whereby one of the co-owners holds the legal title in trust for the remaining co-owners who are beneficial owners entitled to the receivables from the land alternatively an independent entity may be appointed as trustee.
TAXATION
The co-ownership arrangement is structured as a bare trust under which the beneficiary of the trust has an immediate and absolute right to income.Beneficiaries will thus have to pay income tax on income that the trust receives therefore each co-owner is assessed to tax on its own share of the rental income and other gains.
LIABILITY
In a co-ownership arrangement there is no responsibility for the debts of other co-owners, no right to act as agent for any other co-owners and no fiduciary obligations are owed. The liability of the co-owners is limited to their joint investment in the asset.
REGULATING THE ROLES OF PARTICIPANTS
A trust deed is created to regulate the relationship between the investors and will deal with matters such as:
1. The quantum of interest held by each participating investor.
2. A provision that each co-owner’s liabilities are proportionate to such co-owner’s interest.
3. Delegation of the management of the property to a developer or property manager (to avoid the accusation that the co-owners are “carrying on a business in common” and thus be misconstrued as a partnership).
4. Procedures for decision making.
5. The duration for which the co-investment would exist.
6. The procedure by which the receivables from the assets would be distributed to the co-owners.
7. The procedure for disposal of a co-owners interest under the structure, it is typical for the remaining co-owners to have a pre-emptive right over any interest which is to be disposed.
CONCLUSION
The co-ownership structure is an efficient and cost effective investment vehicle that give investors a direct interest in real estate and allows for participation in a capital intensive market that would be impossible, impractical, or less desirable for individual investors.
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BACKGROUND
The Nigerian real estate industry may be described as a potential backbone for the Nigerian economy.Participation in the industry has various limiting factors that impede investment such as unfavorably terms for bank financing, high interest rates, regulatory oversight forcollective investment schemes and exorbitant transfer taxes. However there are a wide
range of flexible legal structures available under which investors may participate in real estate investment while ensuring that their economic and commercial concerns are
addressed.
When considering any structure for a real estate transaction, the possibility of being treated as a collective investment scheme ”Scheme” under the Investment and Securities
Act must be considered, the Act defines a scheme as “a scheme in whatever form, including an open ended investment company in pursuance of which members of the public are invited or permitted to invest money or other assets in a portfolio”.The regulatory burdenof a Scheme will be avoided if the structure chosen does not fall under the scope of the Act, for instance , unlike a Scheme which is open to the investing public and subject to regulatory oversight, a co-ownership is a purely private arrangement which is formed by way of invitation to select investors.
THE CO-OWNERSHIP CONCEPT
A co-ownership is a legal structure which permits more than one investor to jointly own real estate or a portfolio of assets, by combining resources and sharing risks associated with real estate acquisition/development.
TYPES OF CO-OWNERSHIP
There are two main types of co-ownership: Tenancy In Common and Joint Tenancy. Each typeofco-ownership provides different rights and obligations as follows;
1. Tenancy In Common: Each tenant in common has a separate fractional interest in the entire property but may also possess and use the whole property. Tenants In
Common may hold unequal interest in the property which is usually based on their contributions.
Tenants In Common do not have the right of survivorship.Therefore, upon the death of one tenant in common, his/her interest passes via a will or through the laws of intestacy to another person(s) who will then become a Tenant In Common with the surviving co-owner(s).
2. Joint Tenancy: Joint tenants hold a single unified interest in the entire property. Each joint tenant must have equal shares in the property. Each joint tenant may occupy the entire property subject only to the rights of the other joint tenant(s). Joint tenancy is distinguished from tenancy in common by the concept of”survivorship.” This means that when one joint owner dies, the surviving owner becomes the sole owner of the entire property, free from the claims of creditors and heirs of the deceased joint tenant. It also means that the property will not pass through the deceased’s will, but simply vests in the surviving joint tenant.
Any co-owner’s interest held in Tenancy In Common or Joint Tenancy may be freely transferred to third parties. However, if one joint tenant transfers his/her interest to a third party, the third party becomes a tenant in common with the other co-owners who remain joint tenants with each other.
STRUCTURING THE CO-OWNERSHIP
The traditional method for structuring joint venture real estate investments was for the participating investors to establish a limited liability company to acquire the asset with each investor holding a proportion of the issued shares in the company, however given the fact that such investors would be liable to dual taxation i.e. corporate tax and tax on dividends it is advised that investors acquire a direct interest in real estate which may be achieved through a co-ownership trust.
REGISTRATION OF THE INTEREST
Due to the limitation in some states on the number of persons who may jointly be registered as holding the legal title in real estate, the co-ownership is structured as a trust whereby one of the co-owners holds the legal title in trust for the remaining co-owners who are beneficial owners entitled to the receivables from the land alternatively an independent entity may be appointed as trustee.
TAXATION
The co-ownership arrangement is structured as a bare trust under which the beneficiary of the trust has an immediate and absolute right to income.Beneficiaries will thus have to pay income tax on income that the trust receives therefore each co-owner is assessed to tax on its own share of the rental income and other gains.
LIABILITY
In a co-ownership arrangement there is no responsibility for the debts of other co-owners, no right to act as agent for any other co-owners and no fiduciary obligations are owed. The liability of the co-owners is limited to their joint investment in the asset.
REGULATING THE ROLES OF PARTICIPANTS
A trust deed is created to regulate the relationship between the investors and will deal with matters such as:
1. The quantum of interest held by each participating investor.
2. A provision that each co-owner’s liabilities are proportionate to such co-owner’s interest.
3. Delegation of the management of the property to a developer or property manager (to avoid the accusation that the co-owners are “carrying on a business in common” and thus be misconstrued as a partnership).
4. Procedures for decision making.
5. The duration for which the co-investment would exist.
6. The procedure by which the receivables from the assets would be distributed to the co-owners.
7. The procedure for disposal of a co-owners interest under the structure, it is typical for the remaining co-owners to have a pre-emptive right over any interest which is to be disposed.
CONCLUSION
The co-ownership structure is an efficient and cost effective investment vehicle that give investors a direct interest in real estate and allows for participation in a capital intensive market that would be impossible, impractical, or less desirable for individual investors.
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